Public Bill Committee

[Frank Cook in the Chair]

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Philip Hammond: On a point of order, Mr. Cook. Is it not customary that it is the Government’s responsibility to ensure a quorum in the Committee, using Government Members? Is it not unusual to have a Committee dependent for its quorum on Opposition Members?

Frank Cook: I am tempted to inquire how long the hon. Gentleman has been a Member of the House. He ought to know that there is no such responsibility. A quorum is a quorum is a quorum.

Schedule 27

Abolition of allowances: consequential amendments and savings

Amendment made: No. 148, in schedule 27, page 322, line 35, at end insert—
‘(1) Sub-paragraph (2) applies if—
(a) an initial allowance has been made under Part 3 of CAA 2001 in respect of qualifying enterprise zone expenditure, and
(b) an event occurs in relation to the building on which the expenditure was incurred which, if section 307 of that Act (withdrawal of allowance if building not industrial building when first used etc) remained in force, would result in the allowance being withdrawn.
(2) Unless the event occurs more than 7 years after the end of the chargeable period for which the allowance was made, the allowance is to be withdrawn as if that section remained in force.’.—[Jane Kennedy.]

Schedule 27, as amended, agreed to.

Clauses 82 to 84 ordered to stand part of the Bill.

Clause 85

Power to make consequential and transitional provision

Jeremy Browne: I beg to move amendment No. 185, in clause 85, page 47, line 33, leave out paragraph (b).

Frank Cook: With this it will be convenient to discuss amendment
No. 186, in clause 85, page 47, line 36, leave out from ‘(2)’ to end of line 37 and add
‘may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.’.

Jeremy Browne: I will try to keep the pace as lively as it has been so far.
Clause 85 allows the Treasury to make consequential and transitional provisions in relation to clauses 68 to 84. That is a catch-all power, and it includes the clauses on the abolition of industrial and agricultural buildings allowances, which we discussed at length in the previous sitting. Amendment No. 185 would remove paragraph (b) from subsection (4), which allows any changes to have retrospective effect providing that the provision
“does not increase any person’s liability to tax”.
Amendment No. 186 would remove the negative resolution procedure and introduce the positive resolution procedure for any changes made under the clause.
I tabled the amendments to seek assurances on a couple of matters. First, I would like to ask the Financial Secretary whether paragraph (b) will allow the Government retrospectively to alter provisions to reduce allowances, for example by reducing the phasing-out levels for agricultural buildings allowances from those decided in clause 82. Will the right hon. Lady explain whether there is scope for changing the goal posts agreed in subsequent finance Bills? Secondly, do the Government think that it is appropriate to use statutory instruments and the negative resolution procedure to introduce retrospective provisions?
The context for this part of our deliberations is, as we discussed at length on Tuesday afternoon, the widespread concern that people who made planning assumptions about their business investments, in some cases dating back to the 1980s, as well as people who made those assumptions as recently as the middle of the current decade, will be adversely affected by the changes. However, at least they now know the scope of that adverse effect. They know that the tapering-out will leave them worse off, but they can make calculations about how much worse off they will be and make adjustments. Given the state of the public finances, I am seeking reassurance from the Minister that the goal posts will not be further moved in subsequent Bills; for example, that the tapering-out will not take place more rapidly than envisaged in the legislation.

Jane Kennedy: It is a pleasure to serve under your chairmanship, Mr. Cook. It is a very fine day and I hope that we can bring that good atmosphere into the Committee, as has been our practice so far in our debates.
Given the scale of the reforms that we have been considering in the last few clauses—14 of the last 17 clauses having been part of the package business tax reforms announced in 2007—it is possible that some of the consequential amendments that need to be made to other Acts, which refer to legislation that has been repealed or changed significantly, have been missed. The hon. Member for Taunton has tabled a probing amendment to ascertain the purpose of the powers that we would take under the clause. I hope to reassure him by saying that they could be used only to relieve tax, but not in a way that would be detrimental to a taxpayer. The clause provides the power to make any transitional and savings provisions that are necessary as a result of the reforms. They allow such amendments to be retrospective only when the change does not increase someone’s liability to tax. The statutory instrument that deploys that power would be subject to negative resolution. I hope that that provides the reassurance that the hon. Gentleman was seeking. His question was a sensible one. Given my reassurance, I hope that he is prepared to withdraw his amendment.

Jeremy Browne: I am grateful to the Minister for her reassurance, and I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 85 ordered to stand part of the Bill.

Clause 86

Balancing allowances on transfers of trade

Philip Hammond: I beg to move amendment No. 218, in clause 86, page 48, line 29, leave out subsection (4) and insert—
‘(4) Where this section applies—
(a) section 343(2) shall apply, but as if the words “and are subject to section 343A (company reconstructions involving business of leasing plant or machinery)” were omitted; and
(b) section 343A shall not apply.’.
This is a technical drafting amendment, the authorship of which I do not claim. It comes from the Law Society, which is concerned about the lack of clarity in the drafting of subsection (4). The amendment intends to clarify the intention of that subsection so that it is clear that in a case to which the anti-avoidance provisions of clause 86 apply, section 343(2) of the Income and Corporation Taxes Act 1988 would be omitted and, separately, that section 343(A) would not apply in a case to which this anti-avoidance section applies. There is no question about what the provision is trying to achieve, but the wording in the Bill is clumsy and is capable of more than one interpretation. The Law Society has proposed that subsection (4) be divided into two paragraphs, so that it says clearly where section 343(2) should apply, but as if the words,
“and are subject to section 343(A)”
were omitted, and, separately, that section 343(A) itself “shall not apply”. I hope the Minister can confirm that the Law Society’s interpretation is correct, and that the amendment does not change what the Government intended. If she will not accept our amendment, will she at least place on record an acknowledgement that the interpretation as per the amendment is correct for future guidance of Her Majesty’s Revenue and Customs decision-makers and the courts?

Jane Kennedy: Amendment No. 218 does no more than seek to clarify the intention of clause 86 (4). I appreciate the way in way in which the hon. Gentleman moved it, and it may help if I explain how subsection (4) works. This will be quite a technical reply, but it is a proper and technical amendment, which has the same effect as the subsection that it seeks to amend. I will try to explain why we do not believe that it is necessary.
Subsection (4) of new section 343ZA applies section 343(2) of the Income and Corporation Taxes Act 1988 to transactions that fall within the scope of the new section. Section 343(2) is one of its main operative provisions, providing that a trade is treated as not ceasing and commencing for the purposes of the Capital Allowances Act. This is the effect that is needed for the new clause.
However, section 343(2) ends with words that ensure it normally applies subject to the provisions of section 343A. As section 343A ensures that section 343 does not apply in some circumstances, it could have the effect of allowing a trade to be treated as ceased. Therefore, in applying section 343(2) to new section 343ZA, it is necessary to ensure that section 343A does not affect the outcome. This is achieved by omitting the closing words of section 343(2). It is at moments like this that I wish I was next door in Committee Room 9 debating the Human Fertilisation and Embryology Bill.
This is the effect of subsection (4) of new clause 343ZA. The proposed amendment would have the same effect. We can debate the elegance of the wording, but our advice is that the wording in the Bill is what is required to have the effect I have described. I believe that new subsection (4) is unambiguous and there is no need to make the amendment. It would be interesting to hear the views of the Law Society after that explanation. I ask the hon. Gentleman to withdraw the amendment.

Mark Todd: That is clear then.

Philip Hammond: As the hon. Gentleman says, that is clear. How the right hon. Lady can suggest that that is unambiguous is slightly beyond me. I am quite sure that it is fairly ambiguous. It emphasises how complex the tax code is. The important point is that although I do not pretend to have followed precisely the logic of her explanation, as she read it out, those who need to interpret this statute will not only have followed it, they will be able to refer to it. Therefore the matter is clarified for the future guidance of HMRC practitioners and, if ever necessary, the courts. The purpose of the amendment has been served, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 86 ordered to stand part of the Bill.

Clauses 87 and 88 ordered to stand part of the Bill.

Schedule 28

Inheritance of tax-relieved pension savings

Question proposed, That this schedule be the Twenty-eighth schedule to the Bill.

Mark Hoban: Welcome to the Chair, Mr. Cook.
I will say a few brief words about the schedule and raise a question about parity. The schedule should be regarded as being in honour of the right hon. Member for Normanton (Ed Balls), now the Secretary of State for Children, Schools and Families, who had a particular obsession with the ways in which people could inherit tax-relieved forms of savings. Comparatively simple sections of the Finance Act 2004 on alternatively secured pensions were amended in 2006 and 2007. Here we are in 2008 amending those same sections and extending to other types of pension schemes the measures used to discourage people from using alternatively secured pensions.
It is not entirely clear what mischief, if any, the schedule is supposed to tackle. I do not have any evidence that there has been widespread abuse of the pension schemes that are identified. I would be grateful if the Economic Secretary would provide clarification, because one of the consequences of the measure is the application of a tax charge of up to 82 per cent. to payments made from scheme pensions when there is an increase in the pension rights of one member following the death of another member who is part of the family or a partner. This is quite a complex measure.
I want to raise several issues with the Economic Secretary. As I understand it, a number of these small pension schemes have at their heart an asset that is relevant to the business. The pension scheme might own a factory, an office or a shop that is used in the business. When these measures were first discussed, I spoke to a number of pension advisers who were concerned that these changes could lead to the forced realisation for sale of those assets to fund pension charges. The responses to the consultation from organisations such as the Association of British Insurers suggest that those concerns have been allayed.
There are still areas where there is a lack of clarity for taxpayers in interpreting these rules. I refer the Committee to the concluding words of paragraph 7(3)(a), which state,
“but otherwise having regard to the circumstances of the member”.
Paragraph 9(2)(a) contains the words,
“otherwise having regard to the circumstances of the dependant”.
The explanatory notes are commendably brief on the topic, but they do not provide clarity for tax advisers or pensioners about what might be deemed to be the circumstances of the dependant. I do not know whether the intention is to produce guidance to supplement that paragraph and the explanatory notes, but it would be useful for people to have greater clarity on the purpose and the meaning of
“having regard to the circumstances of the member”
so that they can understand how these particularly complex rules should be applied.

Kitty Ussher: It is a pleasure, as always, to serve under your chairmanship, Mr. Cook.
The hon. Member for Fareham correctly summarised what the schedule is attempting to achieve. It will change current legislation to ensure that scheme pensions and lifetime annuities are used to provide a retirement income for life, and not as a means of diverting tax-relieved pensions savings into inheritance. It will make the treatment of scheme pensions and lifetime annuities consistent with that of alternatively secured pensions, which the hon. Gentleman rightly says have been considered by previous Finance Acts, and so create a level playing field for the different ways in which individuals aged 75 or over can use their pension funds to secure an income for the rest of their lives.
The hon. Gentleman asked why we are doing that, and it is really a point of principle. The purpose of giving generous tax relief on pension savings is to support savings that provide a secure income in retirement, so provisions allowing tax relief to be redirected and passed on to inheritance are contrary to that fundamental principle. In addition, mass-market providers of pensions told the Government that a level playing field between alternatively secured pensions and other types of pensions was required, and we agree. While the measure was not being particularly abused, according to our evidence, the failure to act would have left in place a perverse tax incentive for members of pension schemes to select pension options that provide the best opportunity to increase inheritances for their children and grand children, rather than maximising the income in retirement available to them and their dependants. There are other ways of saving for one’s children and grandchildren, rather than doing so through pension schemes.
The hon. Gentleman made a point about assets belonging to a scheme—a factory, for example—having to be realised as a result of this measure, but that is not our view. The measures apply only after the pension scheme has begun to pay a secure pension, and therefore will not affect the type of assets that the scheme must realise to provide that pension, so I hope that I can allay the hon. Gentleman’s concerns and those of the wider audience in that regard.
The hon. Gentleman questioned the precise meaning of the phrase
“having regard to the circumstances of the member”.
It is intended to ensure that account is taken of the fact that an individual may have a higher nil-rate band if a claim has been made to transfer the nil-rate band on the death of a spouse. However, we will shortly provide further guidance on that point, which I hope will allay any concerns.

Mark Hoban: Why can we not either have that guidance now, or have those circumstances set out more clearly in the Bill? Having that guidance, or preferably having the amendments on Report to clarify what “other circumstances” actually means, would provide better parliamentary scrutiny.

Kitty Ussher: We are not convinced that it will require amendments on Report, but the hon. Gentleman has made his point. I hope that I have indicated in the debate broadly what the purpose of that phrase is, and I give him my undertaking that we will publish further guidance as soon as possible.

Question put and agreed to.

Schedule 28 agreed to.

Clause 89 ordered to stand part of the Bill.

Schedule 29

Further provision about pension schemes

Question proposed, That this schedule be the Twenty-ninth schedule to the Bill.

Mark Hoban: I want to ask some detailed questions that cover a number of different issues relating to the schedule. Paragraph 7(3) states that
“the individual is one of a class of at least 20 pensioner members”,
but that term is not defined. That is quite important, because there is an anti-avoidance provision in paragraph 7(4), which will insert new sub-paragraph (4) into the original legislation so that any increase within 12 months of a previous increase is not acceptable if the class of pensioner members is different between the two increases and if
“the purpose, or one of the main purposes, of the individual’s being included in the new class is”
to avoid being caught through an excessive increase.
Will the Minister confirm that the class will be defined by reference to criteria, and that it does not matter that the individuals within a class are different at two different dates? A class of pensioners is likely to change over time, because pensioners may die, but new pensioners will join that class. Hence, any second increase within a 12-month period may involve what is technically a different class, even if 90 per cent. of the individuals have remained the same. Is class defined by the individuals who are part of that group or by specific criteria?
Paragraph 8 discusses threshold annual rates and circumstances in which exemptions may be taken for relatively small increases. There is concern that, at times, Department for Work and Pensions legislation requires changes and there has been a suggestion that those increases may exceed the retail prices index. Therefore, it would be appropriate for an exemption from testing to apply to any increase required by legislation. Has the Minister given any thought to that?
Paragraph 18 deals with the inheritance tax treatment of non-UK pension schemes. In principle, the paragraph is widely welcomed by pension advisers. It corrects a situation that has arisen since A-day, when changes were made to the pension regime. Prior to A-day, a sponsored superannuation scheme was outside the scope of inheritance tax legislation , including overseas pension schemes. However, post A-day, only registered schemes and something called “section 615 schemes” have been outside the scope of IHT. All non-registered schemes, both UK and overseas, were within the scope to IHT and subject to the ensuing complexity.
Recognising that there are overseas schemes that should fall outside the scope of IHT is welcome to the industry. However, there is concern about the definition of the scheme as set out in the draft statutory instrument, which the Minister kindly circulated to members of the Committee. Because it reflects the way in which Her Majesty’s Revenue and Customs looks at UK tax schemes, it creates a slight problem. If a scheme does not qualify it imposes burdens. Pension schemes could be treated as a settlement and subject to significant IHT consequences, such as 10th anniversary charges. There are pension schemes designed to deal with expatriate employees or people who work overseas that could become liable to those charges, because they do not fall within the definition of qualifying schemes as set out in the draft statutory instrument. I shall give some examples.
First, some countries, such as the US, have limits on benefits in approved pension schemes, and management often has unapproved schemes on top of the approved schemes. While it may be reasonable for those schemes not to enjoy full UK income tax approval, because they will not qualify for the exemption, long-term inheritance tax burdens may be imposed on them. Secondly, some skilled mobile executives often end up in international pension schemes in cases in which individuals move from country to country a number of times and no particular country’s pension scheme can cover them. Those people often form part of a key group of senior management but, because of the mobile nature of their employment, their pension scheme is not often open to ordinary local employees, as it is geared to benefit mobile expatriates. According to the draft statutory instrument, such schemes would not qualify, so IHT burdens could be imposed on them with compliance and reporting obligations. Such complexity is not normally found in other countries. That has an impact on how business friendly the UK tax regime is seen to be, compared with other countries where businesses might think about locating skilled, mobile executives.
I would be grateful if the Minister considered that issue. Could amendments be made to the wording of the statutory instrument that would broaden the definition of a qualifying non-UK scheme? They could take into account situations such as those in which the benefits in one territory are capped and there are additional schemes, or situations in which a pension scheme can be set up to cover people working in a range of different companies. I would be grateful for the Minister’s comments.

Kitty Ussher: This is rather a hotch-potch of miscellaneous provisions, and the questions that the hon. Gentleman asked each refer to a different provision. I request the patience of the Committee, as I will describe what the schedule is attempting to achieve, before coming on to the points made by the hon. Gentleman.
Schedule 29 to clause 89 contains the details of a package of amendments that simplify the administration of the pension system. The amendments respond to industry lobbying, pre-announced consultation and clarification of the rules, following the enormous exercise that led to the changes at A-day. The amendments, while providing administrative easements, also preserve the key underlying principle that tax relief is given for pension savings, in order to encourage and support saving that will produce income in retirement.
The changes in the schedule fall into three categories. The first and by far the largest category simplifies the administration, bringing practice into line with intention and providing the deregulatory benefits that we could achieve. We became aware of a number of circumstances in which pension schemes make payments, often in innocent error, such as an overpayment of an ongoing pension, that would currently be treated as an unauthorised payment, and so are subject to a tax charge of up to 70 per cent. A change to the regulation-making powers, as we propose, would allow those payments to be taxed in the same way as authorised payments from pension schemes.
The second change that our regulations will provide are relaxations to the rules on trivial commutation, allowing occupational pension schemes to trivially commute pots of up to £2,000 and to help tackle the issue of small stranded pension pots. A further administrative change will ensure that the funds that migrant workers build up in non-UK pension schemes that have received UK tax relief are appropriately identified, to ensure that UK tax relief and charges for overseas pension schemes equate with those for registered pension schemes. That ensures that the legislation works as intended, simplifies administration and protects tax revenues by removing a potential loophole.
Two further administrative improvements resulted from proposals made by the pensions industry. The first change simplifies complexities for scheme administrators in the calculation of lump sum payments. The second ensures that the members of large occupational schemes are not unintentionally caught by the rules preventing tax-relieved investment in residential property. Finally, in the category of administrative improvements, the schedule includes a change to restore from April 2006 protection from inheritance tax charges to savings in certain overseas pension schemes, as the hon. Gentleman mentioned, which was inadvertently removed in changes made to the pension tax rules. The protection will apply where the overseas scheme is regulated and tax-recognised in the country in which it is set up. If the country has no system for regulation and tax-recognition, the pension scheme must provide for the savings to be used to provide a pension income for life. The hon. Gentleman queried whether that imposed burdens on schemes that are liable to IHT charges. The regulations have been published in draft, and are intended to give the same inheritance tax protections that apply to schemes broadly equivalent to UK-registered pension schemes, so we hope that there is not an additional burden. That is the purpose of the regulations, but we have only published them in draft, and my colleagues at HMRC are happy to accept and consider representations. If groups outside the Committee have made points to the hon. Gentleman, we are happy to take them on board and consider them to make sure that we get this right.
That is the first category of issues which the schedule covers. The second category is the change, following consultation, to rules preventing avoidance of the lifetime allowance charge. The pensions industry has welcomed those easements, which make the administration of the rule simpler and less costly. The third category is the clarification of the rules on employer contributions. The change confirms that during the period from April 2004 to April 2006, the only tax relief is the actual contribution paid in the year, which prevents any doubt about how the provision operates.
The hon. Gentleman made two other points. First, he asked about the increase of the threshold annual rate. It allows exemption from the test if the increase is below the higher figure of 5 per cent. or RPI, which we believe will account for all the circumstances that we envisage. It works in conjunction with the rule allowing exception if more than 20 members have the same increase.

Mark Hoban: Is the Minister therefore saying that DWP payments will not be taken into account when calculating the threshold test, and that people will not need to calculate it if there is an increase due to changes in DWP requirements?

Kitty Ussher: I do not have the answer to that question, but I am sure that I will.

David Wright: They are included.

Kitty Ussher: They are included, I am told by some strange telepathic force. I hope that that answers the question asked by the hon. Member for Fareham.
On the hon. Gentleman’s question about the class of pension members, the class relates to 20 people receiving pensions. It does not matter if the people in that class change, unless it is done for avoidance purposes. The test for avoidance relates to whether the people in the class have changed to avoid the charge. There is an intentional test. I hope that I have clarified those issues for the Committee, and I commend the schedule.

Question put and agreed to.

Schedule 29 agreed to.

Clause 91

Notification and registration of transactions

Kitty Ussher: I beg to move amendment No. 149, in clause 91, page 52, line 24, leave out ‘, other than any rent,’.

Frank Cook: With this it will be convenient to discuss Government amendments Nos. 150 and 151.

Kitty Ussher: These are small amendments to ensure that clause 91 and schedule 30 have the effect that we intended when we drafted them. The Government expected the changes introduced by clause 91 and schedule 30 to remove the need to notify HMRC of more than 270,000 transactions per year. It is a welcome deregulatory measure. Clause 91 introduces a rent notification threshold of £1,000, which applies to the grant of leases for a term of seven years or more and reduces the administrative burden of stamp duty land tax. Previously, one was required to notify HMRC of a grant of any lease for seven years or more, provided it was made for a chargeable consideration.
However, clause 91 also applies the same £1,000 notification trigger in respect of leases that are assigned or surrendered. The assignment of a lease refers to the transfer of rights to use leased property, which can obviously happen periodically as rents are renegotiated. The requirement to notify the assignment or surrender of leases when the relevant rent was £1,000 or more, regardless of the size of any other chargeable consideration for the assignment or surrender, was added to ensure that the data the Government collect on property transactions were not harmed by the measure.
However, since the Bill was published, we have received representations about the extra reporting that the additional requirement will create. We are, as always, keen to ensure that we can deregulate wherever possible and that we do not place additional burdens on business, so we think that we can collect the data in another way. We have re-examined the requirement and agreed that we can offset the deregulatory savings if we proceed as we originally intended.
We believe that the data collected from the notification of the granting of leases would not be unduly affected by an amendment that removed the requirement to notify HMRC of the assignment and surrender of leases when the relevant rent is £1,000 or more. I trust that the amendment is uncontroversial.

David Gauke: It is a pleasure to serve under your chairmanship again, Mr. Cook. The Financial Secretary said earlier that she hoped that the pleasant weather outside would be reflected in a pleasant environment in this room. I do not think there will be a great deal of controversy about this clause. Although we might take issue with the Economic Secretary’s characterisation of the Government as always keen to deregulate, this is, none the less, a deregulatory measure.
We welcome the intention behind clause 91, which raises the threshold of notification to HMRC of a land transaction for stamp duty land tax purposes. We also welcome the fact that the Government have listened to representations—particularly from the British Property Federation and the Law Society—that the original wording would not perhaps have been as successful in reducing the regulatory burden as was intended. We therefore welcome the fact that the Government have produced not only the clause, but the amendments. Indeed, we tabled an amendment on removing the £1,000 rent requirement that is identical to Government amendment No. 150. Hence, the entire Conservative Front Bench supports amendment No. 150—such is our enthusiasm for the measure. No doubt, the Liberal Democrats will make a statement that they are the real alternative by not putting their name to the amendment.
I have a couple of questions for the Economic Secretary. The first question is about the requirement of notification for the £40,000 threshold—chargeable consideration. Given that SDLT is payable at £125,000 or £150,000—I would be grateful if the Economic Secretary will confirm that—I assume that the £40,000 requirement exists to provide the Government with property-related information, as opposed to being for the assessment of SDLT. That would enable the Minister for Housing to share that information with the Cabinet and, indeed, with passing cartographers.
There are difficulties in filing a correct SDLT return under section 75A if the purchaser has no connection with the other parties to the transaction and therefore cannot obtain the information to complete the return and self-assessment. I know that representations have been made to the Treasury on that point, so I should be grateful to know whether the Government are considering the issue of filing SDLT returns and whether there are plans to address that concern. In conclusion, we welcome the clause and the Government’s amendments.

Kitty Ussher: The hon. Gentleman raises an important point because there is obviously tension between the need simply to acquire information about what is happening in the market for a variety of Government purposes and the genuine desire to deregulate in relation to the companies and individuals concerned. The implication in his question is why the notification threshold is not the same as the threshold for the tax itself. We need the information collected from notifications to help other Departments, such as the Land Registry and valuation offices, to make assessments based on data collected from returns. Even if no tax is collected on the transactions, there is a requirement in relation to that.
The hon. Gentleman mentioned filing under section 75A, and we will be issuing guidance on that shortly. We do not believe that a return form is needed; a letter setting out the main points will suffice. I hope that answers his question.

Amendment agreed to.

Amendments made: No. 150, in clause 91, page 52, line 25, leave out from ‘£40,000’ to end of line 26.
No. 151, in clause 91, page 52, line 33, after ‘consideration’, insert
‘for the assignment or surrender’.—[Kitty Ussher.]

Clause 91, as amended, ordered to stand part of the Bill.

Schedule 30 agreed to.

Clause 92

Charge where consideration includes rent: 0% band

Kitty Ussher: I beg to move amendment No. 152, in clause 92, page 54, line 42, at end insert—
‘( ) In Schedule 9 to that Act (SDLT: right to buy etc), after paragraph 4A insert—

“Shared ownership lease: grant not linked with staircasing transactions etc
4B (1) For the purpose of determining the rate of tax chargeable on the grant of a shared ownership lease of a dwelling, the grant shall be treated as if it were not linked to—
(a) any acquisition of an interest in the dwelling to which paragraph 4A applies, or
(b) a transfer of the reversion to the lessee or lessees under the terms of the lease.
(2) In this paragraph “shared ownership lease” has the same meaning as in paragraph 4A.”
( ) In that Schedule, in paragraphs 10(1) and (2) and 11(b) (shared ownership trusts), omit “additional”.
( ) In that Schedule, insert at the end—

“Shared ownership trust: declaration not linked with staircasing transactions etc
12 For the purpose of determining the rate of tax chargeable on the declaration of a shared ownership trust, the declaration shall be treated as if it were not linked to—
(a) any equity-acquisition payment under the trust or any consequent increase in the purchaser’s beneficial interest in the trust property, or
(b) a transfer to the purchaser of an interest in the trust property upon the termination of the trust.”’.
The amendment follows on from the abolition of the so-called £600 rule for residential purchases and amends the stamp duty land tax rules for shared ownership in schedule 9 to the Finance Act 2003. With the abolition of the £600 rule for residential property, the premium paid for a shared ownership lease will no longer attract stamp duty land tax at 1 per cent. when it is below the threshold of £125,000, or £150,000 in a disadvantaged area. A special relief then exempts staircasing transactions that do not take the purchaser beyond an 80 per cent. share of the property.
The intention was that shared ownership purchasers would normally pay SDLT only on purchases that took them beyond 80 per cent. ownership of the property, but when there is a series of transactions between the same vendor and purchaser, the SDLT linked transactions rules set the rate of stamp duty on each transaction by reference to the aggregate consideration given in all the transactions. The premium on a shared ownership purchase and subsequent staircasing transactions are linked transactions for that purpose. That means that any purchase of a share in a shared ownership property that takes the buyer over the SDLT threshold of £125,000, or £150,000 in a disadvantaged area, would bring the premium back into charge at 1 per cent., even if it was below the starting threshold. That is the case even if the purchase does not give the purchaser an 80 per cent. share in the property and even though the further transaction is itself not chargeable because it attracts staircasing relief.
These matters are complex, but we have realised that a situation would have been created that was not the intention of clause 92, so the amendment disapplies the linked transactions rules as they apply to the premium paid for a shared ownership lease to keep the premium out of charge when it is below the starting threshold. The amendment makes a similar change regarding an initial payment by a beneficiary of a shared ownership trust that provides shared ownership facilities for commonhold flats. The amendment will have no Exchequer cost, and I hope that it has the support of hon. Members on both sides of the Committee.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

David Gauke: I thank the Economic Secretary for her clear explanation of the amendment. I have one question about the clause, which relaxes the £600 rule that prevents the manipulation of lease thresholds by entering into leases in which both rent and a premium are paid. Like many measures, the £600 rule was introduced as an anti-avoidance measure, and I should like to know what persuaded the Treasury that it is no longer necessary. What assurances can the Minister give that the consequence of its repeal will not be the avoidance behaviour that was the very cause of its introduction?

Kitty Ussher: The hon. Gentleman makes a valid point. We have decided that the risk of manipulation between premiums and rent to avoid paying SDLT is much greater for non-residential property than for residential property. The removal of the £600 rule for residential properties would bring huge benefits to those purchasing a property through a shared ownership scheme, by ensuring that in the vast majority of cases they pay stamp duty land tax only on transactions that take them beyond 80 per cent. ownership of the property. We were advised, for example, by the Chartered Institute of Taxation that retention of the £600 rule for non-residential property is disproportionate to the level of possible abuse. We are trying to balance the risks, and we are comfortable that there is no major incentive to abuse the provision.

Question put and agreed to.

Clause 92, as amended, ordered to stand part of the Bill.

Clause 93

Withdrawal of group relief

Kitty Ussher: I beg to move amendment No. 153, in clause 93, page 55, line 36, at end insert
‘(but see sub-paragraph (6A))’.

Frank Cook: With this it will be convenient to discuss the following: Government amendment No. 154
Amendment No. 187, in clause 93, page 56, leave out lines 4 to 6.
Amendment No. 159, in clause 93, page 56, line 6, at end insert—
‘(8) The provisions of sub-paragraph (4) shall not apply unless, at the effective date of the transaction, there are arrangements in existence by virtue of which, at that time or some later time, a person has or could obtain, or any persons together have or could obtain, control of the purchaser but not of the vendor.’.
Government amendments Nos. 155 to 158.

Kitty Ussher: I shall speak to the Government amendments, which in many cases will resolve some of the issues raised by both Opposition parties. I assume that Opposition Members wish to speak to their own amendments, so I shall respond to them in detail when they have done so, rather than pre-empt them. I shall instead explain what we are trying to do with our amendments, which might lead us on to what other hon. Members wish to propose.
Clause 93 has been introduced to close a loophole that has been widely used to avoid paying stamp duty land tax. Following its announcement in the Budget, a number of representations were submitted by the industry detailing concerns about parts of the operation of the clause. In particular, there was uncertainty about how the legislation will be applied in practice and concerns that it might catch innocent transactions. The legislation is not intended to disadvantage genuine taxpayers, so the Government amendments have been introduced to ensure that the legislation operates as intended and to provide the certainty sought by the industry.
Some representations suggested that the clause is retrospective, which is not the case. It is not intended to penalise anyone who has acted on the basis of existing legislation, so Government amendment No. 158 has been introduced to ensure that the provision applies only to transfers of assets occurring after Budget day. Concern was also expressed about the meaning of “control” in the clause—this may relate to amendment No. 187, in the name of the Liberal Democrat Members. The word “control” has been used in this context for many decades, but it has been suggested that a change in control of the purchasing company might be inadvertently triggered resulting in a clawback of group relief. I would expect a property group to take the necessary legal steps to pre-empt such a possibility, without being caught by the legislation.
Having considered the representations, however, I wish to provide greater certainty in two specific areas, which might pre-empt some of the points that may be made. The first point relates to a change in control arising as a result of refinancing where the finance is not provided by a bank. Such a finance provider is defined in legislation as a loan creditor. In certain circumstances, financing obtained from a loan creditor would trigger a change in control, which might present difficulties to groups seeking refinancing. That is not the Government’s intention, so we have proposed an amendment to introduce an exclusion that will ensure that financing obtained from a loan creditor will not result in a change of control for the purposes of clawing back group relief. We have also proposed the introduction of a similar exclusion elsewhere in schedule 7 to the Finance Act 2003 to ensure consistency across the group relief legislation. Those two measures refer to Government amendments Nos. 153 and 154.
Government amendments Nos. 155 to 157 are consequential and address the second area of concern, which is that HMRC might construe the meaning of a change of control so widely that the change of one shareholder in a quoted company might result in a change of control and, therefore, trigger the clawback provision. Similar concerns were raised in relation to reconstruction relief. I can confirm that we intend to take the same approach—if control of a publicly owned company changes as a result of an ordinary market transfer of its shares, there will be no recovery, because we do not intend to interpret change of control so widely that simple day-to-day transactions by unconnected minority shareholders in the stock exchange could trigger a clawback. We will issue guidance shortly to confirm that view.
In conclusion, the Government amendments will provide the certainty sought by the industry, while ensuring that the loophole exploited by those seeking to avoid their share of tax will be closed. The amendments will have no Exchequer costs or revenue implications and will be welcomed by a wide range of practitioners and the industry. I shall stop now to allow others to speak to their amendments and then I will wrap up the debate.

Jeremy Browne: I think the Minister dealt with the concerns raised in amendment No. 187 which stands in my name and that of my hon. Friend. I tabled the amendment after I received a letter from PricewaterhouseCoopers, which was no doubt also sent to the Minister and Conservative Members. The letter drew attention to a fictional case study, which was none the less a perfectly reasonable hypothetical case, and expressed concern that the wide drafting of section 416 would inadvertently lead to the withdrawal of group relief. I should be grateful if the Minister could confirm that the example would be addressed as my amendment would then have achieved its objective. PWC wrote:
“Where the top company in a group is owned by three unconnected shareholders (each holding 40 per cent. 30 per cent. and 30 per cent.), section 416(3) ICTA 1988 would treat them as together controlling the top company. If one shareholder leaves, they will no longer be considered as controlling the company ‘together with others’ and group relief withdrawal will be triggered.”
Three other examples were given in the letter. I appreciate that this is a complex area, but will the Government amendments address that concern? PWC also suggested creating a statutory definition of an SDLT group. Has that, too, been provided for by the Government?

David Gauke: I am grateful to the Economic Secretary for her comments. She will be aware that a number of representations have been made on the clause. It might be helpful if I briefly outline how it is supposed to work. I also have a number of examples where there may be an issue on which I seek reassurance.
Paragraph 1 of schedule 7 of the Finance Act 2003 allows companies to claim group relief on transfers of assets between group members. A restriction allows clawback when the purchaser ceases to be a member of the same group as the vendor. For perfectly obvious reasons, the use of group relief would otherwise be a rather easy way to avoid SDLT. The problem the Government are seeking to address is that if first the vendor and then the purchasing company leaves the group, it is no longer possible to make the clawback.
The clause allows clawback where the vendor leaves the group and then within three years there is a subsequent change of control of the purchaser. There was certainly concern about the possibly retrospective nature of that provision and I am grateful to the Government for tabling amendment No. 158, which addresses that concern. However, we are still left with a structure such that if the vendor transfers property to another group company, the vendor leaves the group and then there is a change of control of the purchaser, clawback may occur.
The Minister has addressed one of the concerns that was raised. If the purchaser was part of a public group, arguably any change in the shareholders could trigger these provisions, which is not the Government’s intention. None the less, given the comments made by the Economic Secretary, there could still be an issue in the event of the purchaser being part of a public group that is then taken over. In those circumstances, the effect of a change of control would be a three-year poison pill for companies that have carried out transactions of the sort to which we have referred. That may well have some significance for the liquidity of the stock market.
I would be grateful if the Minister could confirm that that interpretation is correct—that the amendments tabled by the Government will, as well as rightly addressing circumstances where there is a change of just one shareholder, address circumstances where the purchaser is part of a group that is taken over.
Similarly, where the purchaser is part of a group that is taken over and executive share options are exercised, could that conceivably trigger a change of control for these purposes? Equally, a corporate restructuring that would involve the insertion of a new holding company above the purchaser but below the top code, would not result in an ultimate change in economic ownership, but may well be a change of control for the purposes of clause 93. That is not an uncommon restructuring for a private company that is preparing for an initial public offering. In those circumstances, that change of control and therefore clawback may—perhaps unintentionally—be triggered.
There are also circumstances where the purchaser group’s majority shareholder is a partnership. That is common with regard to private equity arrangements, which are normally structured through partnerships, and if there is any change in the partners—the investors in a particular fund that may be a majority shareholder in the purchaser—a change of control would be triggered.
In such circumstances, I do not think that we are talking about the mischief that the Government legitimately seek to address. We are talking not about a tax scheme, or some sort of plan to avoid stamp duty land tax, but about something that is happening as a consequence of the ordinary workings of a business which may cause particular concerns. There is also an issue, if we are talking about an entirely legitimate series of transactions, if the vendor has left the group, no longer has any control over what happens with regard to the purchaser, and then finds itself ultimately liable when it was not expecting it. A degree of uncertainty is created here.
Amendment No. 159 tries to address the matter by limiting these provisions to arrangements that were made with a view to avoiding stamp duty land tax effectively, because they were all part of one particular plan. There are various ways in which that could be addressed, but we have tabled the wording proposed by the Law Society on the matter. The hon. Member for Taunton referred to the definition of an SDLT group, which is another way of addressing that particular matter.
We remain concerned that the provisions of clause 93—notwithstanding the Government amendments, which, in themselves, are welcome—are too limited. In particular, the reference to lone creditors does not, as far as we can see, address the circumstances that I have outlined. Perhaps the Economic Secretary can provide some clarification. Therefore, we are not yet satisfied that the concerns, which, I think the Government recognise, are legitimate, have been addressed.
Sadly, the hon. Member for Wolverhampton, South-West (Rob Marris) is not part of the Committee proceedings this year. He was for the previous two years. He was always keen to point out that he disliked beginning a paragraph with the word, “But”. He would consistently object to it. In his absence, I draw the Committee’s attention to clause 93(4) and proposed new paragraph 4ZA(4) of schedule 7 to the Finance Act 2003, which begins with that word. I am also not sure that Government amendment No. 153, which ends
“(but see sub-paragraph (6A))”,
is the most elegantly drafted. I make those points in honour of the hon. Member for Wolverhampton, South-West—people in my party quote him quite a lot at the moment—but I would be grateful if the Economic Secretary addressed my main concerns with clause 93.

Frank Cook: Order. In paying that tribute, the hon. Gentleman has simultaneously, craftily, crept into a stand part discussion. I must warn the Committee that if there are any remarks to be made in a stand part debate, they should be made at this point.

Peter Viggers: If I have appeared so far to represent the Trappist tendency of the Conservative party, it is not because I have not been following the debate with keen interest. On several occasions, I have been minded to table amendments similar to those tabled by Conservative Front Benchers, so I congratulate them on the solid and professional job that they are doing of criticising the Bill.
It is not frivolous to complain about the language. “But” and “see” are not very good lawyerly words—they are a little casual—so I hope that my hon. Friend’s comment will be fed into the well oiled Treasury machine.

Mark Field: Given your point on stand part remarks, Mr. Cook, I should like briefly to say that the amendments would be quite sensible. In fairness to the Government, they have tried to deal with a number of concerns with the clause with their own amendments.
I wish to make this narrow point. We understand the Government’s desire to ensure that the changes come into play when there is a withdrawal of group relief. Equally, the notions of change of control and group relief in the modern commercial world are changing. As the Economic Secretary will be aware, the emergence of private equity funds and the way in which they operate are changing, and the welcome prevalence of executive share option schemes brings into play a range of new organisations within business that could fall foul of what might traditionally have been regarded as a change of control by group relief provisions.
I hope that the Economic Secretary will give a satisfactory answer even if she does not accept the Opposition amendment, and that she will be able to give a broader overview. Many of the professional advisers who have contacted us fear that the clause will go far wider. Will she assuage their concerns?

Kitty Ussher: I am grateful to all hon. Members for raising those important issues. I reassure the Committee that I shall personally send a copy of the Hansard report of this sitting to my hon. Friend the Member for Wolverhampton, South-West. I am sure that he will be delighted that his concerns have been raised by Opposition Members. Our lawyers will take account of the point, too. I am not a lawyer, so I am unable to judge whether the measure is in lawyerly language, but I presume that it is at least correct in law.

Mark Todd: There are rather too many lawyers.

Kitty Ussher: I would not wish to repeat that and have it recorded in Hansard.
The answer to the two questions asked by the hon. Member for Taunton is yes. We are addressing both issues that were raised by PricewaterhouseCoopers. It is probably obvious from my earlier comments that the Government have benefited from a close dialogue with various industry bodies, and I place my thanks to them on the record.
The hon. Member for South-West Hertfordshire raised the commonly described concern that the withdrawal of relief will represent a poison pill for the property industry. That is why the clause will make amendments to the Finance Act 2003 to ensure that the legislation will affect only those transactions that occur after 13 March this year. Anyone using the exemption will now be aware of the potential consequences should there be a change in control of the purchasing company within three years of the transfer of the assets. I hope that that explanation answers the point.
The hon. Gentleman’s substantive question was: why are we seeking clawback of SDLT group relief in circumstances where there is no disposal of a property-holding company by the group? Without the vendor exemption, group relief would have been withdrawn at the point that the vendor left the group. We believe that it is reasonable that we should seek to withdraw where there is a change in control of the purchasing company. The asset within the purchasing company would then be owned by someone else. It is exactly the same if a group is sold. There is still a change in the ownership of the asset. To suggest that one scenario is acceptable and the other is not, ignores the reality of the situation. That is why our proposal is as it is. He is within his rights to oppose the clause if he thinks that we are handling the matter incorrectly.
I will discuss the arrangements test and amendment No. 159 that the hon. Gentleman tabled with text suggested by the Law Society. The Law Society also expressed concern to us that the clause will catch innocent transactions and create uncertainty for taxpayers who do not engage in tax avoidance. Amendment No. 159 deals with the involvement of such transactions. It is not clear to us, however, that the arrangements test would ensure that all the scenarios presented by the Law Society would be excluded, nor would we wish that to be the case in all situations.
The arrangements test has been suggested as a method of distinguishing between what are regarded as commercial transactions and tax-avoidance schemes. Indeed, many of the commercial scenarios presented use the same loophole that has been exploited for avoidance purposes. It has only been by exploiting the existing legislation that groups have been able to avoid the withdrawal of group relief in the past.
Amendment No. 159 would open potential avoidance possibilities. For example, it would require HMRC to demonstrate that arrangements are in place for the control of the purchaser, but not the vendor. It would be relatively easy for avoidance schemes to devise around that test, thus reducing the effectiveness of the clause. We also feel that arrangements tests are difficult to administer and create uncertainty in the industry. Clearance application requests to HMRC would also increase as groups sought to obtain certainty that they would not be caught.
We believe that we have already addressed the Law Society’s main concern with the Government amendment to ensure that legislation will apply only to transactions after 13 March. We have introduced a further amendment to exclude loan creditors from the changing control tests. The Government amendments were requested in representations and we feel that they will assist industry without traducing the effectiveness of the clause. Its effectiveness would be traduced if we accepted amendment No. 159 and I invite members of the Committee to resist it.

David Gauke: May I address the comments made by the Economic Secretary? On the issue of the poisoned pill, as in my earlier comments I acknowledge that this measure is not retrospective in the sense that it relates only to transactions after 13 March. However, there is still an issue of the poisoned pill. For example, it is still possible for a transaction to occur when the vendor leaves a group and there is a subsequent change in control of the purchaser. There would still be a poisoned pill event in that circumstance. The concern therefore remains.
The Economic Secretary stated that the asset will be owned by somebody else because there will be a change in control of the property. She did not address my example of a new holding company being inserted into a group. As I understand it, that will still constitute a change of control, even though the economic ownership will remain exactly the same. As far as I can see, the concern about private equity funds raised by my hon. Friend the Member for Cities of London and Westminster has not been addressed.

Kitty Ussher: I apologise for my oversight in not addressing the point raised by the hon. Member for Cities of London and Westminster, who was concerned that private equity would be adversely affected. We do not think that that is the case and would be concerned if it were. Like all groups in the property industry, private equity will need to consider the clause when a vendor leaves the group. To clarify the matter, we intend to work with the industry to produce guidance that we hope will put any of those concerns to rest and provide the reassurance that is sought. That will take place.

David Gauke: I am grateful for that intervention, although it was more of an assertion that the measure will not affect private equity firms rather than evidence that it will not. As we shall see later, the Government are relying on guidance rather than statute. I am not persuaded by the Economic Secretary with regard to flaws in amendment No. 159. An arrangements test would, I think, address the Government’s legitimate concern and would not cause the problems that I have identified. I am inclined to push amendment No. 159 to a vote and will not seek leave to withdraw it.

Amendment agreed to.

Amendment made: No. 154, in clause 93, page 56, line 3, at end insert—
‘(6A) Sub-paragraph (4) does not apply where—
(a) there is a change in the control of the purchaser because a loan creditor (within the meaning of section 417(7) to (9) of the Taxes Act 1988) obtains control of, or ceases to control, the purchaser, and
(b) the other persons who controlled the purchaser before that change continue to do so.’.—[Kitty Ussher.]

Amendment proposed: No. 159, in clause 93,page 56, line 6, at end insert—
‘(8) The provisions of sub-paragraph (4) shall not apply unless, at the effective date of the transaction, there are arrangements in existence by virtue of which, at that time or some later time, a person has or could obtain, or any persons together have or could obtain, control of the purchaser but not of the vendor.’.—[Mr. Gauke.]

Question put, That the amendment be made:—

The Committee divided: Ayes 8, Noes 15.

Question accordingly negatived.

Amendments made: No. 155, in clause 93, page 56, line 7, leave out ‘4A(1)’ and insert ‘4A’.
No. 156, in clause 93, page 56, line 8, after ‘transactions),’, insert ‘—
(a) in sub-paragraph (1),’.
No. 157, in clause 93, page 56, line 9, at end insert—
‘(b) after that sub-paragraph insert—
“(1A) Sub-paragraph (1) has effect subject to sub-paragraph (3A).”,
(c) in sub-paragraph (3)—
(i) for “sub-paragraph (1)(a)” substitute “this paragraph”, and
(ii) for “this sub-paragraph” substitute “this paragraph”, and
(d) after sub-paragraph (3) insert—
“(3A) Sub-paragraph (1) does not apply where—
(a) there is a change in the control of the purchaser because a loan creditor (within the meaning of section 417(7) to (9) of the Taxes Act 1988) obtains control of, or ceases to control, the purchaser, and
(b) the other persons who controlled the purchaser before that change continue to do so.”’.
No. 158, in clause 93, page 56, line 12, leave out from ‘2008’ to end of line 19.—[Kitty Ussher.]

Clause 93, as amended, ordered to stand part of the Bill.

Clause 94

Transfers of interests in property-investment partnerships

Question proposed, That the clause stand part of the Bill.

David Gauke: I have only one brief point to make about the clause, which aims to restrict the scope of the anti-avoidance measures introduced in the Finance Act 2007 by ensuring that when there is a transfer of an interest in a property within an investment partnership, there will be no charge to SDLT. The measure will be retrospective and take effect for transactions that occurred on or after 19 July 2007. The concern that the anti-avoidance provisions will apply more than the Government intended, with regard to an interest in a property within an investment partnership, was made at some length this time last year in Committee by my hon. Friend the Member for Chipping Barnet (Mrs. Villiers), and in an intervention by my hon. Friend the Member for Ludlow (Mr. Dunne).
The clause represents one of those occasions when the concerns that they and various professional groups raised have been recognised. On the one hand, I welcome the Treasury’s recognition of those concerns, but this time last year, it was apparent that the legislation in the 2007 Finance Bill was flawed and would have an unfortunate effect. As a consequence, there has been a period of uncertainty, and I just wanted to put on record that it is regrettable that clause 94 is necessary because of flaws in last year’s legislation. They were known to the professionals and to the equivalent Committee last year.

Question put and agreed to.

Clause 94 ordered to stand part of the Bill.

Schedule 31 agreed to.

Clause 95 ordered to stand part of the Bill.

Mr. Bob Blizzard (Waveney) (Lab): I beg to move that further consideration of the Bill be now adjourned. I just think that it is easier to stop here, before the debate on clause 96 starts, because we have Treasury questions in seven minutes’ time.

Frank Cook: We could have done without the rationale—but I shall put the question.
Further consideration adjourned.—[Mr. Blizzard.]

Adjourned accordingly at twenty-three minutes past 10 o’clock till this day at One o’clock.